Working capital management and firms' profitability - A comparative study on manufacturing and service firms in HOSE
Abstract
The goal of this study is to investigate the impact of working capital management on
firms’ profitability. In the study, account receivable period (ACP), inventory conversion
cycle (ICP), and account payable period (APP) are factors of working capital
management The study will compare the efficient of working capital management from
two industries are manufacturing industry and service industry. Panel data is collected
from 117 companies consist of 63 companies in manufacturing sector and 54 companies
in services sector listed on Ho Chi Minh Stock Exchange (HOSE) for the period from
2008-2014. By using Random Effect Model (FEM), I found that there is a significant
negative relationship between inventory conversion period and firm profitability. The
result of the study also found that account payable period increase will make firm’s
profitability decrease. From the study, account receivable period do not significantly
impact on profitability. By comparing two industries, manufacturing sector will be
affected by adjusting working capital more than service sector. Therefore, the managers
need to consider managing working capital at the optimum lever for each industry to help
firm create more profits.